Share Repurchases and Firm Innovation

Abstract

In this paper, we investigate the relationship between share repurchase and firm innovation. Using a sample of 6,889 U.S. firms for the 1996-2006 period, we find a significantly negative effect of share repurchase on current and future firm innovation. Our identification strategy based on the instrumental variables approach suggests this negative effect is causal. The relationship between share repurchase and firm innovation remain valid in all robustness tests.